idicate for true and \"F for false in the column to the right. Read all statemen
ID: 2601345 • Letter: I
Question
idicate for true and "F for false in the column to the right. Read all statements erpetuity must always have a higher value than a common stock because dividends are expect to be paid forever 3s When interest rates rise, bond and stock values must fall. 36.You should always choose the investment with the highest APR (annual percentage ratel) 37.A stock's required return is equal to the dividend growth rate plus the capital gains yield number of compounding periods differs. 38.For lump sums, present values will increase as 't' increases. 39.The dividend yield must always be greater than 0%. 40.Diversification can eliminate unsystematic risk. 41.The market capitalization of a stock is the total market value of a stock. 42.Diversification can reduce standard deviation. 43.Diversification can reduce the level of systematic risk. 44.A stock's capital gains yield will always be positive 45.A stock that has a holding period return that is greater than the fair return according to CAPMis overvalued and you should buy it. 46.Under the dividend growth model, the dividend growth rate is the same as the price growth rate. 47.According to the CAPM, as the risk-free rate increases, returns on stocks should increase. 48.The value of a zero-coupon bond must atways be less than $1000. 49.You have calculated the value of an investment to be $95. If it costs $100, you should buy it. 50.A stock with a payout ratio of 0.70 MUST have a higher dividend yield than a stock with a payout of 0.50. 51.A callable bond with a coupon rate of 8% is likely to be called when yields are 6%. 52.According to the CAPM, as the risk-free rate increases, stock values should increase. 53.For annuities, present values increase as 't increases 54.Private Mortgage Insurance (PMI) protects borrowers in case they are unable to m payments 55. Stock A has a beta of 2. Stock B has a beta of 8. Therefore, it must be true h unsystematic risk than Stock BExplanation / Answer
Answer 34) False
Preferred stock valuation is calculated in the same manner as a perpetuity. Unlike common stock, preferred stock is a hybrid with characteristics of both stock and debt. Preferred stockholders receive a dividend payment that is normally fixed and that continues indefinitely (just like a perpetuity). To determine the worth of preferred stock, the present value of future cash flows must be calculated using discounted cash flow analysis. This valuation is very different from the valuation of common stock, which is generally based on analysis of business fundamentals or market demand.
Answer 35) True,
Interest rates and bond prices have an inverse relationship; so when one goes up, the other goes down
Answer 37) True
r e= Divdiend Yield + Capital Gains Yield
Answer 38) False
A decrease in the time period increases the present value factor.
Answer 39) True
Dividend yield ratio shows what percentage of the market price of a share a company annually pays to its stockholders in the form of dividends.
Answer 40) True
Diversifiable - This risk is also known as "unsystematic risk," and it is specific to a company, industry, market, economy or country; it can be reduced throughdiversification. The most common sources of unsystematic risk are business riskand financial risk
Answer 41) True
A company's market capitalization is the market value of its outstanding shares
Answer 42) False
Diversification REDUCES Risk, BUT does not eliminate the risk of investment losses
Answer 43) False
Unsystematic risk can be reduced through diversification. ... Interest rates, recession and wars all represent sources of systematic risk because they affect the entire market and cannot be avoided through diversification. Systematic risk canbe mitigated only by being hedged.
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